Laws of Business

Indian Contract Act, 1872

Definition[edit]
A contract is a legally enforceable agreement between two or more parties with mutual obligations.
The Indian contract Act 1872, Section 2(h) defines the term contract as an agreement legally
enforceable by law, for the formation of a contract there must be an agreement, the agreement
should be enforceable by law. 1. There must be a "lawful offer" and a "lawful acceptance" of the
offer, thus resulting in an agreement.
2. Acceptance 2(b):- When the person to whom the proposal is made, signifies his assent there to,
the proposal is said to be accepted.
3. Promise 2(b) :- A Proposal when accepted becomes a promise. In simple words, when an offer is
accepted it becomes promise.
4. Promisor and promisee 2(c) :- When the proposal is accepted, the person making the proposal
is called as promisor and the person accepting the proposal is called as promisee.
5. Consideration 2(d):- When at the desire of the promisor, the promisee or any other person has
done or abstained from doing something or does or abstains from doing something , such act or
abstinence or promise is called a consideration for the promise. Price paid by one party for the
promise of the other Technical word meaning QUID-PRO-QUO i.e. something in return.
6. Agreement 2(e) :- Every promise and set of promises forming the consideration for each
other. In short,

7. Contract 2(h) :- An agreement enforceable by Law is a contract.

Therefore, there must be an agreement and it should be enforceable by law.

8. Void agreement 2(g):- An agreement not enforceable by law is void.

9. Voidable contract 2(i):- An agreement is a voidable contract if it is enforceable by Law at the
option of one or more of the parties there to (i.e. the aggrieved party), and it is not enforceable by
Law at the option of the other or others.
10. Void contract 2(j) :- A contract which ceases to be enforceable by Law becomes void when it
ceases to be enforceable.

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Features of Valid Contract

Features of Valid Contract can be clearly known under the heads Consensus ad
idem, Certainty, Free Consent, Capacity of Parties, Consideration, Legal Formalities,
Lawful Object, Legal Obligations, Possibility of Performance and, Agreements not
declared void.
Consensus ad idem: Consensus ad idem means identity of minds. That means
there should be no difference between ways of thinking of offerer & offeree. Both of
them should understand the same thing in the same way. In the absence of
consensus ad idem, the contract is not valid.

Example: A has two houses one at City A and the other at City B. He wants
to sell his house situated at City A. Now he is making an offer to B to sell
away one of his house to which he gives his acceptance. Here A is thinking
about house at City A and B has given acceptance with a view to purchase
house at City B. Here is no consensus ad idem.

A case on this point is Raffels Vs Wichelhaus. In this case there is a contract

between A & B according to the terms of which A has to supply raw cotton to
B in peerless ship. There are two ships with the same name. While entering
into the contract A thinks about second peerless and B thinks about first
peerless. Here court decides that their contract has no consensus ad idem &
hence it is void.

Certainty: The wording used in the contract must be certain. Uncertain wording
makes the Contract Void.

Related case is Taylor Vs Portington. In this case there is a Contract between

A and B according to which A has to modernize his house and B has to join as
tenant. If the mode of modernization is satisfactory to B. Here court decides
that their is no Certainty and therefore it is Void.

Free Consent: Both parties should enter into the Contract with Free Consent. There
should be no physical pressure (coercion) or mental pressure (undue influence).
Absence of free consent makes the Contract Voidable. A Voidable Contract may
become either Valid or void depending upon intention of the suffering party.

A case on this point is Ranganayakamma Vs Alwar Setty. In this case B gives

a threatening to A saying that he (B) will not allow cremation of dead body of
A`s husband, unless A adopts B`s sons. Here it is decided that there is no free
consent from the side of A. There it is voidable, at the option of A.

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Capacity of Parties: Both parties should have eligibility or qualification to enter

into a Contract. Such eligibility is called Capacity of Contract. Minor insolvent
person`s, lunatic persons etc have no capacity to contract.

Related case is Mohiribeabee Vs Dharmades Ghosh. In this case A is a money

lender and B is a minor. A Contract gets formed between them according to
which B has to pledge his property with A to obtain a loan. On that occasion
the minor executes a deed also saying that money lender has write off lien on
the pledged property till settlement of debt. There after the minor sues to get
in his property back without settling the debt. Money lender claims that he
has write-off lien as per the deed. Here court decides that the deed executed
by minor is void and therefore lender has no lien.

Consideration: Both parties presenting the Contract should get benefited mutually.
Consideration may be in the form of cash or goods or act or abstinence.
Consideration need not be adequate.

Legal Formalities: Contract may be oral or documentary. In case where it is oral,

the concept of legal formalities is not applicable. If the contract is of documentary
nature, all legal formalities like stamp duty etc must be properly fulfilled. If legal
formalities are not satisfied the contract becomes unenforceable.

Example: A and B have written their agreement on Rs. 10/- stamp where it is
to be written actually on Rs. 100/- stamp. It is not Valid Contract.

Lawful Object: To attain validity object of the contract must be lawful. Un-lawful
object makes the contract illegal & hence void.

Example: There is a contract between X and Z according to which Z has to

murder Y for a consideration of Rs. 10000/- from X. It is unlawful object.

Legal Obligations: To attain validity contract must be capable of creating legal

obligations. One directional consideration leads to friendly relations and two
directional consideration leads to legal relations.

A case on this point is Balfour Vs Balfour. In this case A and B are husband
and wife respectively. As per their contract, husband has to send money to
his wife at regular intervals of time for the purpose of medical treatment.
Here Court decides that there is only one directional consideration and hence
their contract is not creating legal relations. So, their contract is held to be
void.

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Possibility of Performance: It should be possible to perform the event agreed in

the contract. Impossibility makes the contract void.

Example: A contract to join two parallel lines, has no possibility for

performance and hence such a type of contract is void.

Agreement not declared void: Certain types of agreements are declared to be

void by statues. As such agreements are harmful to society and they are named as
Agreement opposed to public policy. Agreements in restraint of trade, Agreements
in restraint of marriage, Agreements in restraint of personnel freedom etc come
under Agreement opposed to public policy.

A case of this occasion is Madhav Vs Rajkumar. In this case a contract gets

formed between A and B according to which B has to stop his business and
for that A has to pay Rs. 900/- to B. There-after B stops his business and A
fails to pay. B Sues for recovery. Court decides that it is agreement in
restraint of trade and hence void.

If an agreement satisfies all these features, then it becomes a contract. So All

Contracts are agreements, but all agreements are not Contracts.
According to Sec. 10 of Indian Contract Act All agreements are contracts if
they are made by free consent of the parties, competent to contract, with a lawful
object, for lawful consideration and are not hereby expressly declared to be void.
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Types of Contracts
In connection with contracts, there are four types of classifications. Types of
contracts in contract law are as follows;
1. On the basis of Formation,
2. On the basis of Nature of Consideration,
3. On the basis of Execution and
4. On the basis of Validity.
Types of Contracts on the basis of Formation
On this base Contracts can be classified into three groups, namely Express, Implied,
Quasi Contracts.

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Express Contracts: The Contracts where there is expression or conversation are

called Express Contracts. For example: A has offered to sell his house and B has
given acceptance. It is Express Contract.
Implied Contract: The Contracts where there is no expression are called implied
contracts. Sitting in a Bus can be taken as example to implied contract between
passenger and owner of the bus.
Quasi Contract: In case of Quasi Contract there will be no offer and acceptance so,
Actually there will be no Contractual relations between the partners. Such a
Contract which is created by Virtue of law is called Quasi Contract. Sections 68 to 72
of Contract Act read about the situations where court can create Quasi Contract.

Sec. 68: When necessaries are supplied

Sec. 69: When expenses of one person are paid by another person.

Sec. 70: When one party is benefited by the activity of another party.

Sec. 71: In case of finder of lost tools.

Sec. 72: When payment is made by mistake or goods are delivered by

mistake.

Example: A case on this occasion is Chowal Vs Cooper. In this case A`s husband
becomes no more. She is very poor and therefore not capable of meeting even cost
of cremation. B, one of her relatives, understand`s her position and spends his own
money for cremation. It is done so without A`s request. Afterwards B claims his
amount from A where A refuses to pay. Here court applies Sec. 68 and creates a
Quasi Contract between them.
Types of Contracts on the basis of Nature of Consideration
On this base, Contracts are of two types. Namely Bilateral Contracts and Unilateral
Contracts.
Bilateral Contracts: If considerations in both directions are to be moved after the
contract, it is called Bilateral Contract.
Example: A Contract has got formed between X and Y on 1st Jan, According to which
X has to deliver goods to Y on 3rd Jan and Y has to pay amount on 3rd Jan. It is
bilateral contract.
Unilateral Contract: If considerations is to be moved in one direction only after
the Contract, it is called Unilateral Contract.
Example: A has lost his purse and B is its finder. There after B searches for A and
hands it over to A. Then A offers to pay Rs. 1000/- to B to which B gives his
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acceptance. Here, after the Contract consideration moves from A to B only. It is

Unilateral Contract.
Types of Contracts on the basis of Execution
On this base Contracts can be classified into two groups. namely, Executed and
Executory Contracts. If performance is completed, it is called executed contract. In
case where contractual obligations are to be performed in future, it is called
executor contract.
Types of Contracts On the basis of Validity
On this base Contracts can be classified into 5 groups. namely Valid, Void, Voidable,
Illegal and Unenforceable Contracts.
Valid: The Contracts which are enforceable in a court of law are called Valid
Contracts. To attain Validity the Contract should have certain features like
consensus ad idem, Certainty, free consent, two directional consideration,
fulfillment of legal formalities, legal obligations, lawful object, capacity of parties,
possibility of performance, etc.
Example: there is a Contract between X and Y and let us assume that their contract
has all those above said features. It is Valid Contract.
Void: A Contract which is not enforceable in a court of law is called Void Contract. If
a Contract is deficient in any one or more of the above features (Except free
consent and legal formalities). It is called Void Contract.
Example: there is a Contract between X and Y where Y is a minor who has no
capacity to contract. It is Void Contract.
Voidable: A Contract which is deficient in only free consent, is called Voidable
Contract. That means it is a Contract which is made under certain pressure either
physical or mental. At the option of suffering party, a voidable contract may become
either Valid or Void in future. For example: there is a Contract between A and B
where B has forcibly made A involved in the Contract. It is voidable at the option of
A.
Illegal: If the contract has unlawful object it is called Illegal Contract.
Example: There is a contract between X and Z according to which Z has to murder Y
for a consideration of Rs. 10000/- from X. It is illegal contract.
Unenforceable: A contract which has not properly fulfilled legal formalities is
called unenforceable contract. That means unenforceable contract suffers from
some technical defect like insufficient stamp etc. After rectification of that technical
defect, it becomes enforceable or valid contract.
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Example: A and B have drafted their agreement on Rs. 10/- stamp where it is to be
written actually on Rs. 100/- stamp. It is unenforceable contract.
Void Contracts and Illegal Contracts
All illegal Contracts are void, but all void contracts are not illegal: An illegal
Contract will not be implemented by court. So, illegal contract is Void. A void
contract may not be illegal because its object may be lawful.
The Contracts which are collateral to illegal contract are void, But the
contracts which are collateral to Void contract may be Valid: An illegal
makes not only itself Void but also the contracts connected to it. But a contract
collateral to void contract may attain Validity because object of main contract is
lawful.
Void Contracts and Voidable Contracts
Becoming Valid: A Voidable Contract may become Valid at the option of suffering
party. But a Void Contract can never and never become Valid.
Third Party Rights: In case of Voidable Contracts third party may attain rights on
concerned property, If the third party gets the property before the Voidable
Contracts gets declared as Void. But in case of Void Contract third party cannot get
any right.
- See more at: http://www.lawsofbusiness.com/2013/08/types-ofcontracts.html#sthash.3AqrfJ5U.dpuf
Offer in Contract
Offer is one of the components of agreement. It`s status is equal to that of question.
Offer is otherwise known as proposal. The person who is making the offer is called
offerer or promissory or proposer.
Definition of Offer
When a person signifies to another his willingness to do or to abstain from doing
anything, with a view to obtaining the ascent of that other to such act or abstinence
he is said to make a proposal. - Section 2 (a) of Indian Contract act.
Essentials of Offer
Offer may be General or Specific: Offers are of two types, namely specific offer
and general offer. If offer is made particularly to one person, it is called specific
offer. On the other hand if offer is made to a group of persons, it is called general
offer. General offer also is so powerful as specific offer.

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A case on this occasion is Mrs. Cary Lli (Vs) Carbolic Smoke bal Company. In
this case Carbolic Smoke bal company is a pharmaceutical company. During
contemporary period of this case a fever called `Influenza` is in existence.
This fever arises as a result of rat bite. This fever is characterized by
propagation from one person to the other. On that occasion the company has
invented capsules to cure influenza. Here the company makes a general offer
saying that those capsules can cure influenza very quickly and prior
consumption of their capsules will avoid attack by influenza. In addition to it
the company says that if any person gets attacked by influenza even after
prior consumption, the company will pay 100 pounds to such person. Mrs.
Cary Lli makes prior consumption & gets attacked by that fever. Court
decides that general offer also is valid and hence the company is under
obligation to pay 100 pounds to her.

Offer must be Communicated: Offer attains validity only after Communication.

Un-communicated offer is not valid.

A case on this point is Lalman (Vs) Gowridutt. In this case Gowridutt is fond of
children, but he has no children. Therefore he has brought his sister`s son. On
one day, the boy gets missed from the house. Lalman is Gowridutt`s servant.
Gowridutt sends Lalman to search for the missed boy. After Laman`s
departure, Gowridutt makes an offer according to which he will give a reward
to the person who brings the boy back. Thereafter the boy is found back by
Lalman himself. After sometime Lalman comes to know about the reward and
claims that reward. Here court decides that Lalman has no knowledge of the
offer and hence he cannot claim the reward.

Price Declaration, Advertisement, Prospectus etc are not offers: All these
things are only invitations to make offer, but not offers. Prospectus is invitation to
make offer, share application is offer and allotment is acceptance.

Related case is Harve (Vs) Facie. In this case A is owner of a pen corner and B
is an officer. On one day B sends a telegram to A requesting to inform the
price of Bumper ball pen. A sends Telegram to B saying that price of bumper
ball pen is 10 pounds. Now B gives telegram to A send one pen. Afterwards A
gives telegram saying that he has no stock of Bumper ball pens. B sues A.
Here court decides that price declaration is invitation to make offer and
therefore there is no Contract at all between A and B.

Offer should be made with a view to obtain ascent of the other party: In the
absence of intention to get acceptance the offer is not valid.

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Offer may be Expression or Implied: In presence of conversation it is called

express offer and in the absence at conversation it is called implied offer. Both types
of offers are Valid. It is well known that Implied Contract is Valid. On that ground it
can be conformed that implied offer is Valid offer.
Reticence leads to acceptance - This wording sound should not be included
in the offer: In case where offerer says that Silence indicates acceptance, that
offer is not Valid. As per the rules of Valid acceptance, acceptance must be
communicated. Mere silence is not sufficient.

A related case is Felthour (Vs) Bindley. In this case A makes an offer to B

saying that he (A) wants to purchase B`s property for 30 pounds and still says
that B`s reticency indicates acceptance. Court decides that the offer is not
Valid.

Legal Obligations: Offer must be capable of creating legal relation. That means
two directional consideration must be reflected in the offer.

A case on this point is Balfour (Vs) Balfour. In this case husband offers to send
money to his wife at regular intervals of time for the purpose of medical
treatment to which she gives acceptance. Here the offerer is not willing to get
any consideration from offeree. Hence it is decided that the offer as well as
contract are not creating legal relations.

Certainty: The language used in the offer must be certain there should be no
element of un-certainty.
- See more at: http://www.lawsofbusiness.com/2013/08/offer-incontract.html#sthash.9YCgAYe4.dpuf

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Consideration in Contract
No Consideration, No Contract
To attain Validity and to create legal relations, the Contract should be with two
directional consideration. In the absence of two directional consideration, it can be
said that there is no contract at all (only Social agreement). But, the following are
situations where Contract attains Validity with one directional consideration.

Affection based Contracts

Promise to pay time bared debt

Charities

Completed Gifts

Extension of Time

Negotiable Instruments

Voluntary Services

Agency Contracts

Affection based Contract: If the contract is an outcome of affection, one

directional consideration is sufficient to bring Validity to the Contract.

A case on this point is Raj Lukhy (Vs) Bhoothnadh. In this case A and B are
husband and wife respectively. There are frequent clashes and
misunderstandings between them. As a result, on one day, a contract has
formed between them according to which they have to live separately and for
B`s livelihood, A has to Contribute amounts to B. Upon breach of Contract by
husband, wife files a suit. Here only one directional consideration can be
observed. At the same time it can be confirmed that their Contract is not at
outcome of affection. Thus the Contract is held to be Void.

Another case on this point is Venkata Swamy (Vs) Ranga Swamy in this case
A and B are brothers. A, as a consequence of affection on B, Promises to
discharge B`s debts. In the court it is held that it is a Valid Contract due to
presence of affection. Same decision is made in poon bee bee (Vs) Faiz
Bhiksh and Bheema (Vs) Shivaram.

Promise to pay time bared debt: Limitation Act has specified durations to
perform the Contract. It is called limitation period. In case of pro-note limitation
period is three years. After expiry of three years from the date of Pro-note, the debt
becomes time bared debt. Where creditor cannot proceed legally to recover the
amount. If debtor promises to pay time bared debt, then a new Contract gets
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formed between Creditor and debtor, where there will be one directional
consideration only. i.e. From debtor to Creditor only. But it is Valid Contract.
Charities: In case of Contracts relating to Charities, there will be only one
directional Consideration. Such a Contract is at times Valid and at times Void. If the
party who has to get the amount of charity, comes across any suffering, then it is
Valid Contract. In the absence of loss, the Contract is Void.

A case on this point is Kedarnadh (Vs) Ghorie Mohammad. In the case a

Contract gets formed between A and B according to which A has to donate
certain amount to B for construction of a town hall. Having trust in A`s
promise, B borrows money temporary and commences the construction work.
Thereafter A refuses to pay and B sues. As B has come across laws court
decides that the contract is Valid and hence, he can recover the amount.

Completed Gifts: Gifts are of two types namely Promised Gifts and Completed
Gifts. In case of Promised Gift, The Contract is Void and in case of Completed Gifts
the Contract is Valid. If promised gift is not given, the other party cannot proceed
legally to get that gift. The person who has handed over the gift, cannot get it back
by proceeding legally.
Extension of Time: In case where extension of time to settle the debt is agreed
between debtor and creditor, A new contract comes into operation. In such contract
there will be only one directional consideration. But it is Valid.
Negotiable Instruments: In case of negotiable instruments, as per the provisions
of Negotiable Instruments Act 1881, Consideration will be presumed. So a Contract
relating to negotiable instrument attains Validity with one directional consideration.
Voluntary Services: In case where a party renders voluntary service, the contract
which gets formed after such service, attains Validity with one directional
consideration.
Agency Contracts: In case of Agency Contracts also one directional Consideration
is sufficient to bring Validity to the Contract.
Past Consideration is No Consideration
The Consideration which had already being passed before formation of Contract is
called Past Consideration.
Indian Law: According to Indian law, Consideration may be past, present or future.
So here past consideration is Valid.
England Law: According to England Law, Consideration must be either present or
future. Thus in England past Consideration is not Valid.
Exceptions for the statement Past Consideration is No Consideration
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The following are situations where past consideration also attains Validity in
England.

Service upon request: When a Service is done upon request of the party, such
service, though past consideration, attains Validity.

A case on this point is Campleigh (Vs) Breathwait. In this case B is sentenced

to death. A is kings relative. B request`s A to Save him from that punishment,
by utilizing his (A`s) influence at King. A does so. Thereafter B promises to
give certain reward to A to which A gives his acceptance. Here Consideration
from A to B is past Consideration. But it is given Validity and the Contract is
held to be Valid.

Promise to pay time bared debt: In case of Promise to pay time bared debt the
new Contract formed between Creditor and Debtor attains Validity by means of
making the past Consideration Valid.
Negotiable Instruments: In case of negotiable instruments also England law
gives Validity to past Consideration.
Consideration may move from Promisee or any other Person
England Law: According to England law, consideration should move from promise
only. But there is an exception where consideration may move from a person other
than promisee. Here condition is there must be blood relationship between
promisee and that other person.

A case on this point is Dutton (Vs) Poole.

Indian Law: According to Indian law, consideration may move from promisee or
any other person.

A case is Chinnayya (Vs) Ramayya. In this case A has a daughter namely B

and a brother namely C. A makes an offer to B according to which A will
transfer certain property to B and B has to pay annuity to C. Thus a Contract
gets formed in between them. There after B promises to C to pay annuity.
Afterwards B gets failed in paying annuity to C on the ground that she (B) has
no Consideration from C. Here Court decides that consideration is obtained by
B from A. Thus it is held that B has to pay annuity to C.

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- See more at: http://www.lawsofbusiness.com/2013/08/consideration-incontract.html#sthash.PabD5kvI.dpufEssentials of Consideration

Presence of consideration is one of the requisites of Valid Contract. Consideration
must be of two directional nature. That means both parties should get benefited
mutually. Then only the Contract becomes capable of creating legal relations.
Consideration may be in the form of cash, goods, act or Abstinence.
Definition of Consideration
When at the desire of the promissor, the promisee or any other person has done or
abstained from doing or does or abstains from doing or promise to do or abstain
from doing something, such act or abstinence or promise is called consideration for
the promise. - Sec.2 (d), Indian Contract Act.
Essentials of Consideration
Consideration should be passed at the request of offerer: Offeree should
send only such consideration which is wanted by offerer. In case where offeree
sends un-wanted consideration, he has no right to claim counter consideration.

A case on this point is Durga Prasad Vs Baldeo. In this case there is a contract
between A and B according to which A has to provide for all requirements to
B to run a market and the profits are to be shared between them. Upon C`s
request B makes the market 24 hours market for a consideration from C.
There after C refuses to give remuneration to B on the ground that he (C) has
no consideration from B. Afterwards B claims remuneration from A for
rendering additional work to which A refuses. Here Court decides that the
additional work done by B is not wanted by A and hence B cannot claim
anything from A.

Consideration may move from promise or any other person: According to

Indian law, consideration may move from promise or any other person. It is
specified in Section 2(d) of Indian Contract Act definition itself. But according to
England law Consideration should move from promise only. Though it is said so
England law has given an exception where consideration may move from a person
other than promise. Here condition is there should be blood relationship between
promisee and that other person who is sending the consideration.

A case on this point is Dutton Vs Poole. In this case A has a son called B and a
daughter called C. A wants to conduct his daughter`s marriage out of the sale
proceeds of branches of mango plantation which is inherited property. But B
does not like it. A Contact gets formed between A and B according to the
terms of which B has to conduct C`s marriage out of his (B`s) own savings
and A should not destruct the plantation. Afterwards B says to C that it is his
(B`s) obligation to perform her marriage to which C has given her

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acceptance. Thereafter A becomes no more and B does not render her (C)
marriage on the ground that he (B) has no consideration from C. Here Court
decides that there is blood relation between C and A. B had already obtained
consideration from A in the form of abstinence. There it is decided that B has
to perform C`s marriage.

Consideration may be Past, Present or Future: Consideration are of three

types namely Past, Present and Future consideration. The consideration which is
sent before formation of contract is called past consideration. The consideration
which gets passed at the time of formation of contract is called Present
Consideration. The Consideration which is to be passed in future i.e. after the
contract is called Future Consideration. As per Indian Law three types of
considerations are Valid. But as per England law Past Consideration is not valid.
Consideration need not be adequate: Consideration of the Contract need not
have equal magnitudes. In adequacy of consideration will not infect Validity of the
Contract.

A case on this point is Thomas Vs Thomas. In this case there is a Contract

between A and B according to the terms of which A has to provide his house
to B at a rent of one rupee. Court decides that it is a Valid Contract because
Consideration need not be adequate.

Consideration must be Lawful: Presence of unlawful Consideration makes the

Contract illegal and hence Void.

Example: there is a Contract between X and Z according to which Z has to

murder Y for a Consideration of Rs. 10000 from X. Here Consideration from Z
to X is unlawful and it is illegal contract.

Consideration Must be Real: Consideration should not be of illegal contract. It

must be a believable concept.
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Stranger to Contract
Stranger to Contract cannot sue upon the Contract - Stranger to Contract means a
person who is not a party to the Contract. He is neither offerer nor offeree. That
means Stranger is an outsider or a third party. As he is not party to the Contract he
cannot file a suit in connection with the Contract.

Related case is Dunlop Pneumatic Type Company [A] (Vs) Selfridge and
Company [B]. In this case A sends goods to their agent Due and Company

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[C]. C sell those goods and has to remit amount to A. On account of excessive
work load, C appoints B as its sub-agent, without having any relationship with
A. As per the agency contract formed between C and B, if B sells goods below
the specified price, B has to pay five pounds per unit to C. Thereafter, B sells
two units below the specified price and also fails to pay ten pounds to C. A
files a suit against B to arrange that amount to C. Here Court decides that A is
a stranger and therefore its suit is not supportable.
Exceptions to the Statement 'Stranger to Contract cannot sue upon the
Contract'
Trust deeds: In case of trust arrangements, the beneficiary, though he is a
stranger to the contract, can file suit in case where trustee comes across breach of
trust.

Example: A has a Son namely B who is a minor. For the sale of B, A has
executed a trust deed, appointing C as trustee. Here A is trust maker, C is
trustee and B is beneficiary. Here actually the Contract between A and C. But
B can proceed legally if C breaches the trust.

Stranger is authorized: When stranger is authorized by party to the contract,

then stranger`s suit becomes supportable.
When charge on property is made: In case where charge is created on property,
stranger can file a suit.

A case on this point is Khaja Mohammed (Vs) Hussend Begum. In this case B
is A`s Son and C is B`s wife. A contract gets formed between A and B
according to which A has to provide for C`s betel box expenses, out of the
proceeds which A gets from his property A fails to pay and C sues. Court
decides that C`s suit is supportable though it is stranger`s suit because there
is charge on property.

Agency Contract: In case of agency contract, the principle, though he is a

stranger can file a suit. Here condition is the contract made by the agent should be
in his capacity as agent.
Family Arrangements: In case of family arrangements the dependent person can
file a suit, though they are strangers.

A case on this point is Shuppa Ammal (Vs) Subramanyan. In this case Shuppa
Ammal has two sons. A contract gets formed between those brothers
according to which each of them has to contribute certain amount for their
mother`s livelihood. The contract gets breached and Shuppa Ammal files a
suit. Her suit is given validity under this exception.

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- See more at: http://www.lawsofbusiness.com/2013/08/stranger-tocontract.html#sthash.f2K8F7Qc.dpuf

Contingent Contract
Basing on the presence or absence of Conditions, Contracts can be classified into
two groups namely; Absolute Contracts and Contingent Contracts. In case where
there is no condition, it is called Absolute Contract. As there is no condition,
absolute contract is to be performed under all circumstances.

In case where there is condition, then such contract is called Contingent Contract.
Therefore Contingent Contract means Conditional Contract. When imposed and
condition is fulfilled, the Contingent Contract becomes valid and then parties have
to perform their obligations. If imposed and Condition is not fulfilled, the Contingent
Contract become Void and then it need not be performed. So Contingent Contract is
to be performed under some circumstances only.

Example: There is a Contract between A and B according to which A has to

sell his goods which are in voyage, to B if the ship reaches the harbor safely.
Here condition can be seen and it is Contingent Contract. All indemnity
contracts, guarantee contracts and insurance contracts are Contingent
Contracts. According to Sec. 31 of Indian Contracts Act, a Contract
performance of which depends upon happening or non happening of an uncertain event is called Contingent Contract.

Types of Contingent Contracts

Depending Upon Happening of an Uncertain Event: Sometimes Contingent
Contract depends upon happening of uncertain event. Then if such uncertain event
takes place, the Contingent Contract becomes valid and if that uncertain event does
not take place, the Contingent Contract is Void.

Example: According to Contract formed between A and B, A has to sell goods

to B, if ship comes there safely, their Contract is valid and if the ship gets
drowned, their Contract is void.

Depending upon non-happening of an uncertain event: At times the

Contingent Contract may depend upon non-happening of uncertain event. Then if
that event does not happen, the Contract is Valid and if that event takes place, the
contract is void.

Example: There is a contract between A and B according to which A has to

sell goods to B, if the ship does not come back. Here, if the ship come back,
the Contract is void and if the ship gets drowned away, then it is valid.

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Depending upon happening of an Uncertain event in a fixed period: At

times Contingent Contract may depend upon happening of uncertain event in a
fixed period. If such event happens within fixed period, the contract is Valid. If such
event does not take place with in fixed period, the contract is void.

Example: As per the contract formed between A and B, A has to sell goods to
B, if the ship comes back within 10 days. If it comes on 8th day (or) 9th day,
the contract is valid and if it comes back on 12th day (or) 13th day, the
contract is void.

Depending upon non-happening of an uncertain event in a fixed period: At

times the Contingent Contract may depend upon non-happening of uncertain event
in a fixed period then if such event place within that fixed period, the contract is
void and if that event does not takes place within agreed period, then it is valid.

Example: A has to sell goods to B if the ship does not come back within 10
days. If it comes on 8th day (or) 9th day, the contract is void and if it comes
back on 12th day (or) 13th Day, the contract is valid.

Depending upon an Impossible Event: Sometimes the Contingent Contract may

depend upon impossible event. Such a type of Contingent Contract is abinitio void.

Example: there is a contract between A and B where A will pay Rs.100000/- to

B if B marry C. Assume that C was dead 5 years ago, now element of
impossibility can be seen and their contract is abinitio void.

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Incapacity in Contract Act
Lack of eligibility to enter into Contract is called Incapacity. Incapacity arises due to
the following;

Status

Mental Deficiency

Unsound Mind

Incapacity on account of Status

Foreign Rulers: The effect of Contracts made with foreign rulers will differ from
England law to Indian Law. According to England law, England citizens can enter into
Contracts with their foreign rulers. In case where the foreign ruler breaches the
Contract, England citizen can sue the foreign ruler only when such foreign ruler has
given permission to Sue.
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A case on this point is Mighel Vs Sulthan of Johore. In this case Ms. Mighel an
England citizen. Sulthan of Johore is a foreign ruler. A marriage agreement
has got formed between them. But Sulthan breaches that agreement. Mighel
Sues. It is to be noted that she has filed the suit without permission from
Sulthan. So her suit is striked off.

According to Indian law, Indian citizens can enter into contracts with foreign rulers.
If that foreign ruler breaches the Contract and Indian citizen wants to file a suit,
permission from Central Government is required.
Aliens: Aliens are foreign people who have obtained citizenship in one Country
(other than their own) in accordance with the Constitutional law. The Contract made
with aliens become Void when war breaks out, between the two Countries.

A case on this point is Metropolitan Water Board Vs Dick Kerr and Company. In
this case Metropolitan water board is a municipality board. On one occasion,
It wants to Construct a dam. In this Connection it enters into a Contract with
engineers who are aliens. The Contract is breached. Afterwards War breaks
out between the nations. Thereafter the water board files a suit and Court
decides that their Contract has lost Validity. Soon after declaration of war.

Convicts: Convicts means prisoners. So long as they are in the Prison, they have no
capacity to enter into a Contracts. After completion of Period of imprisonment, they
can enter into Contracts. Contract made by them attain Validity when they are
made at the time ticket of leave.
Insolvent Persons: Insolvent persons have no eligibility to enter into Contracts.
Therefore Official receiver of the insolvent person enters into Contracts in
Connection with Sale of insolvent persons property.
Professional Disqualification: In India there is no profession based Incapacity.
Professional disqualification is seen in England. Physicians (doctors) from Royal
medical College cannot enter into Contracts with their patients. Similarly barristers
cannot enter into Contracts with their clients.
Married Woman: Married Woman has capacity to Contract. If that Contract is in
connection with necessaries, She is capable of making her husband liable to sent
the consideration concerned. If the Contract is related to luxuries, her husband is
not liable.
Companies and Corporations: These are artificial persons created by law like a
natural person, companies and corporations can enter into Contracts.
Incapacity on account of Mental Deficiency

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Mental deficiency means lack of mental maturity. Minor suffer from mental
deficiency. According to Indian law those persons who have not completed the age
of 18 years and in England those who have not completed 21 years become minors.
Incapacity on account of Unsound Mind
The following persons suffer from Unsound mind.
Idiots: Idiots are the persons who suffer from Unsound mind from birth itself.
Therefore they cannot enter into Contracts throughout their life. In such a way they
suffer from permanent Incapacity.
Insane Persons: Insane persons will have two states namely; state of Sanity and
State of Insanity. During state of Sanity, they can enter into Contracts. Thus they
suffer from temporary Incapacity.
Drunkards: These persons also suffer from Unsound mind temporary after getting
recovered from the effect, they can enter into Contracts.
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Restraint of Trade
Certain types of agreements are declared as void by statues. Those agreements are
harmful to Society and they are called 'Agreements Opposed to Public Policy'.
Out of them agreement in restraint of trade is one.
The agreements which restrict trade business or profession are called agreements
in restraint of trade. One citizen cannot restrict lawful business of the other.

A case on this point is Madhav Vs Rajkumar.

Another case on this point is Cohen Vs Wilken. In this case A is owner of a

theater and B is a dancer. According to their Contract B has to Conduct his
dance programs at A`s theater only throughout life. Thereafter B breaches
the Contract and A Sue`s. Court decides that it is agreement in restraint of
trade and therefore A cannot take any legal action.

Exceptions for Restraint of Trade

The following are some occasions on which agreement in restraint of trade attains
Validity.

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Sale of Goodwill: In case where sale of Goodwill takes place, the person who has
paid for Goodwill can restrict the other on reasonable base from doing the business
concern.
With retiring Partner: At the time of retirement of the partner, the existent
partners can restrict the retiring prtners from carrying on the same business.
Among Partners: Partners of a firm may enter into an agreement in restraint of
trade according to which no one of them should carry-on the same business
individually. It is Valid.
At the time of dissolution: Partners of a firm can make an agreement in restraint
of trade at time of dissolution of firm according to which no one of them should do
the same business without prior permission from others.
Elimination of Competition: An agreement in restraint of trade can be made to
eliminate competition on reasonable basis. In Madav Vs Rajkumar the objective of
their agreement is elimination of competition but it is not on reasonable basis.
Hence it is held to be Void.
Trade Unions: A trade Union may restrict an entrepreneur or an enterprise from
doing certain business for the purpose of labor welfare. It is Valid but it should be a
registered trade union.
Analysis as per England Law
In accordance with England law agreement in restraint of trade attain Validity, if it is
reasonable restraint. Absolute restraint is Void.

A case on this point is Nordenfelt Vs Maxim Nordenfelt Gun Company. In this

case B purchases A`s gun manufacturing business. Thereafter, by means of
an agreement, B restricts A from carrying on production of guns for a period
of 10 years. This agreement is breached and a suit is filed by B. England
Court decides that as restriction is of reasonable nature, it is Valid and B
should not do the same business till expiry of agreed period.

- See more at: http://www.lawsofbusiness.com/2013/08/restraint-oftrade.html#sthash.giCBMlY6.dpuf

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Contracts made by Minors

Minors suffer from mental deficiency. They have no Capacity to Contract. According
to Indian law those persons who have not completed the age of 18 years are minors
and in England Minority extends up to 21 years.
Contracts made by Minors as per England law
In accordance with England law Minor Contracts can be classified into 3 groups.
namely; Valid Minor Contracts, Voidable Minor Contract and Void Minor Contracts.
Valid Minor Contracts: If Minor Contract is made for necessaries, then it is Valid.

Example: A case on this point is Nash Vs Inman. In this case A is a tailor and
B is a minor and under graduate. In England Court is necessary to graduate
and luxury to undergraduate. By means of that Contract B gets 11 coats from
A on Credit basis. Thereafter B gets failed in the graduation examination and
doesn't pay amount to it. A files a suit. Court decides that coat is not
necessary and hence the Contract is Void.

Another case on this point is Robert Vs Grey. In this case A is a billiards player
and B is a minor. As per their Contract A has to provide for coaching to B
upon certain consideration where B has selected billiards game as his
livelihood. Afterwards B fails in paying amount to A. Court decides that the
Contract is related to necessaries and therefore Valid.

Another case on this point is Ryder Vs Woombwell.

Voidable Minor Contracts: Partnership agreements and marriage agreements

made by minor are Voidable Contracts as per the provisions of England law. After
becoming major, he may or may not execute that Contract. It should be noted that
those Contracts are Voidable at the option of minor.
Void Minor Contracts: On all other situations, Contracts made by minor become
Void.
Contracts made by Minors as per Indian law
Minor Contracts are ab-initio Void: Contracts made by minors are Void from the
beginning itself.

Example: A case on this occasion is Mohirb bee bee Vs Dharmabas Ghosh.

Ratification is not Valid: A Contract made by minor cannot attain Validity though
it is ratified after becoming a major. Since minor contract is ab-initio Void,
ratification cannot bring Validity.

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Example: Related case is Arumugan Vs Dorai Singh. In this case A is a money

lender and B is a minor. A contract of loan gets formed between them before
repayment of loan, B becomes a major and upon money lender`s request, B
executes another deed in support of debt which is taken during minority.
Upon his failure from A files a Suit on the basis of second deed which is given
after attaining majority. Court decides that the Second bond also is not Valid
because it is just ratification of Minor Contract.

Estoppel principle is not applicable to Minors: Though there is very strong

evidence to say that a person is a major, without applying Estoppel principle,
chance will be given to that person to prove minority.

Example: Related case is Sadiq Ali Khan Vs Jaikishore. In this case A and B are
moneylender and minor respectively. Upon A`s suggestion, the minor
executes a deed saying that he (B) is a major and thus obtains loan.
Thereafter a Suit is filed for recovery. Court decides that the situation is out of
applicability of Estoppel principle and hence a chance is given to B to prove
his minority.

Restitution of fraud: Law has given and certain protection to minor. Minor should
make use of such protection for defense purposes only and not for offence
purposes. If minor fraudulently obtains property, then he is under obligation to
return that property to person concerned. But the provision differs if it is matter of
money.

Example: A case on this point is Lesly Vs Sheele. In this case A is a money

lender and B is minor. A minor, convinces the money lender that he is a major
and thus obtains loan. Here a minor has committed fraud. It should be noted
that is matter of money. Hence the suit filed by money tender for recovery, is
dismissed.

Minor as Partner: According to the provisions of partnership act , Partnership is

result of agreement. As minor has no capacity to contract he cannot be a partner.
But partnership act reads about minor partner. With the consent of all other
partners, A minor may be admitted as a part to the benefits of the firm and with
limited liability.
Minor as Share Holder: Obtaining shares in a Company is also a Contract. (It is
known that prospectus is invitation to make offer, share application is offer and
Allotment is acceptance.) Therefore minor cannot attain membership in a company.
But by obtaining fully paid up shares on the basis of transfer, minor can get share
holder ship in a Company.
Minor as Agent: A minor can act as an agent according to the provision of law of
agency principle should have capacity to contract. But no emphasis is seen with
regard to agent`s capacity to Contract. Whenever agent enters into a Contract in his
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capacity as agent, It is implied that the Contract is made by principle himself. So

minor can act as an agent.
Minor and Necessaries: According to Indian law also, If minor Contract is made
for necessaries, It attains Validity.

Example: Related case is Polaram Vs Ayubkhan. In this case A is a law

practitioner and B is a minor. A contract gets formed according to which A has
to safe-guard B`s property for certain consideration from B. Afterwards B
comes across default in paying remuneration to A. Court decides that though
it is minor Contract, it is Valid because it is made for necessaries.

Minor and Negotiable Instruments: A minor can execute all types of negotiable
Instruments in his capacity as agent.

Minor and Parents: To Contracts made by minors, their parents are not
answerable. Other party to the Contract cannot proceed against minor`s parents to
obtain consideration concern.
Minor as beneficiary: In a trust arrangement minor can be a beneficiary. Though
he is a stranger to Contract, he can proceed legally against the trustee in case
where trustee comes across breach of trust.
Minor and Torts: The only tort which can be committed by the minor is breach of
Contract for all other torts minor is answerable and punishable
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Mistake in Contract
Erroneous belief about something or having wrong opinion about something is
called mistake. While entering into Contract parties think that a particular thing with
regard to their Contract is in a particular way. But that particular thing will not be in
that way as they think. Mistakes in contract law are of two types, namely;
1. Mistake of Law and
2. Mistake of Fact.
Mistake of Law
If parties are under confusion with regard to legal provisions. It is called Mistake of
law. Again mistake of law is of two types. Namely;

Mistake of Home Law and

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Mistake of Foreign Law.

Mistake of Home Law: In case where parties are confused with regard to home
law provisions, it becomes mistake of home law. It is not excusable mistake.
Contract cannot be avoided. Consequences are to be faced. In the Court, a person
cannot say that he has no knowledge of home law.

For example: A has given a loan of Rs. 10000/- to B. It has become time
barred. A has no awareness with regard to limitation act and therefore he has
filed suit for recovery after becoming time barred. Now Court will not excuse
him. His Suit will not be taken into consideration.

Mistake of Foreign Law: If parties are under confusion with regard of foreign law
provision, it is called Mistake of Foreign Law and it will be excused by Indian Courts.
Contract can be avoided. The provision is so because it is not at all possible to a
person to have touch with law of all Countries.

Mistake of Fact
If parties are under confusion with regard to terms of Contract, It is called Mistake of
Fact. Mistake of Fact is of two types, namely;

Bilateral Mistake and

Unilateral Mistake.

Bilateral Mistake
If both parties are under Confusion, it is called Bilateral Mistake. In case of, contract
can be avoided. Again Bilateral Mistake is of two types, namely;

Mistake as to Subject Matter

Mistake as to Possibility of performance.

Mistake as to Subject Matter

It is of six types, namely;
1. Mistake as to Existence of Subject Matter.
2. Mistake as to Identity of Subject Matter.
3. Mistake as to Quality of Subject Matter.
4. Mistake as to Quantity of Subject Matter.
5. Mistake as to Title of Subject Matter.
24 | P a g e

6. Mistake as to Price of Subject Matter.

Existence of Subject Matter: Here both parties think that the Subject matter is in
existence which is not actually Suit.

A case on this point is Couterior Vs Hastie. In this case, there is Contract

between A and B according to which A has to sell his corn to B which is
coming in a ship. They think that the corn is in existence. But before their
Contract an incident has taken place. The Corn has got spoiled and to get rid
of the unbearable smell, Captain of the ship has thrown away the parcels into
the sea. Court decides that it is bilateral mistake and parties can avoid the
Contract. There is no question of Compensation.

Identity of Subject Matter: At times both parties may get confused with regard
to identity of Subject matter. Since it is bilateral mistake contract can be avoided.

A case on this point is Raffles Vs Wichelhaus. In this case a contract gets

formed between A and B according to which A has to send his raw cotton to B
in Peerless Ship. While entering into the Contract A thinks about 2nd Peerless
and B thinks about 1st Peerless. Here mistake as to Identity of Subject Matter
from both sides can be seen. Court decides that Contract can be avoided and
Compensation need not be paid.

Quality of Subject Matter: Sometimes both parties may get confused with regard
to Quality of Subject Matter.

Related case is Nicholson Vs Smith. In this case a Contract gets formed

between A and B according to which A has to sell Charles I Napkins to B. A
gathers some napkins and sells them to B. At that time both parties think that
those Napkins belong to Charles but actually it is not so. They belong to King
George. Court decides that reversal of Considerations can be made. (i.e.
avoiding the Contract.)

Quantity of Subject Matter: At times both parties may get confused with regard
to quantity of Subject matter.

Related case is Cox Vs Prentice. In this case there is a Contract between A

and B according to which A has to sell a Silver bar to B weight of which is to
be X gms. A collects Silver bar and both of them think that its weight will be X
gms. But actually the weight is Y gms. It is decided that Contract can be
avoided.

Title of Subject Matter: Here seller thinks that he has title and buyer thinks that
seller has title. But actually seller will not have title.

Related case is Cooper Vs Phybbs. In this case a lease agreement gets

formed between A and B. Where A has to provide his fish pond to B on lease.

25 | P a g e

Both of them think that it is A`s pond. But actually it belong to B. Court
decides that lease agreement does not operate.
Price of Subject Matter: At times both parties may get confused with regard to
price of Subject.

Related case is Webster Vs Dessil. In this case A Contract gets formed

between A and B according to which A has to sell his property to B, At a price
of $2250/-. But in the document price is written as $1250/- by mistake. While
signing on the deed A and B think that the drafted price is $2250/- Court
decides that Contract can be avoided.

Mistake as to possibility of Performance: Here both parties think that it is

possible to perform the Contracts. But actually it will be an impossible event. In
such a case contract gets discharged.

Example : A has to pay Rs. 100000 to B and for that B has to marry C. While
entering into the Contract A and B think that C is alive. But actually C was
dead five years ago. Here mistake as to possibility of performance can be
seen soon after formation, the Contract gets discharged due to ProContractual impossibility.

Unilateral Mistake
If only one party is under Confusion, it is called Unilateral Mistake. In case of
Unilateral Mistake Contract cannot be avoided.

For example: A wants to sell away his house at a price of $6000. He makes an
offer to B and by mistake he quotes a price of $5000 to which B gives his
acceptance. Here only A is under mistake. It is Unilateral mistake and
Contract cannot be avoided.

Exceptions for Unilateral Mistake

The following are the exceptions where contract can be avoided though there is
Unilateral Mistake.
Mistake as to identity of Parties: If only one party is under Confusion with
regard to identification of party, Contract can be avoided.

A case on this point is Lake Vs Simons. In this case A is a gold merchant and
B is a dacoit woman. She convinces A that she is wife of Charles and thus
obtains some Ornaments on Credit basis. Here only A is under mistake. There
after B sells away those ornaments to C and goes out of which. Afterwards A
comes to know that his Ornaments are at C. He Sues C to get them back.
Court decides that Contract can be avoided and hence C is under obligation

26 | P a g e

to return these Ornaments to A. Sale of goods Act says that seller cannot
pass on a better title that what he himself has.
Mistake as to Nature of Contract: If only one party is under confusion with
regard to nature of Contract, then also Contract can be avoided.

A case on this point is Faster Vs Machillon. In this case A is a gentleman and

he is not good at sight. B is A`s relative. On one day B brings a bond to A and
asks him to sign, saying that it is Surety form. But it is actually bill of
exchange. Believing that it is Surety bond, A signs. Here mistake can be seen
only from the side of A only. Under this exception Court decides that A can
avoid payment of the bill.

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Agreements Opposed to Public Policy
Certain types of agreements are harmful to Society. Such agreements are called
agreements opposed to public policy. Such agreements are declared as Void by
Status. The following are the agreements opposed to public policy.

Agreements in Restraint of Trade

Agreements in Restraint of Marriage

Agreements in Restraint of Personal Freedom

Agreements in Restraint of Parental Rights

Agreements with regard to Compromise of offence

Agreements with regard to sale of Public Offices and Titles

Agreements with Alien Enemy

Agreements based on Bribes

Agreements to form Monopoly

Agreement to Commit a Crime

Agreements to defraud Creditors

Agreements to defraud Government

Agreements in Restraint of Trade: The agreements which restrict trade business

or Profession are called agreements in restraint of trade. One citizen cannot restrict
lawful business of the other.
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A case on this point is Madhav Vs Raj kumar. A and B enters into a contract
according to which B has to close down his business for which he would be
paid amount by A. B closes his business but, A fails to pay B the agreed
amount. B sues A for recovery and court decides that it is an agreement in
restraint of trade and hence void.

Agreements in Restraint of Marriage: The agreements which create restriction

on marriage are called agreements in restraint of marriage. One person cannot
restrict the other from getting married.

A case on this point is Lowe Vs Peerless. In this case an agreement gets

formed between A and B according to which A should marry B only and B
should marry A only. If only one of them breaches the agreement a
compensation of $ 2000/- is to be paid. Court decides that the language used
in the agreement is creating restriction on marriage and hence void.

Agreements in Restraint of Personal Freedom: The agreements which restrict

Personal Freedom are opposed to public policy. For example: An agreement to do
slavery falls under this group.

Related case is Ramasastry Vs Ambela Karen. In this case a contract of loan

gets formed between A and B and their Contract Specifies that B has to join
as slave at As house till Settlement of debt. Court decides that the contract
is void.

Agreements in Restraint of Parental Rights: The agreements which restrict

rights of Parents on their Children are called agreements in restraint of Parental
Rights. By Virtue of an agreement, Parents cannot waive up their rights. Such
agreements are harmful to Children.

A case on this point is Maharaja of Vijayanagar Vs Secretary of State for India.

In this case the king entrusts his children to Court of Wards. On that occasion
a deed is executed by king according to which he is giving absolute Power on
his Children to court of Wards. After Sometimes Court of Wards decides to
send those Children to England for higher Studies. Then the king Sues for
injunction order restricting Court of Wards from Sending the Children to
England. Court issues Such injunction order Saying that by means of an
agreements Parental rights cannot be restricted and Court of Wards Cannot
gets powers on kings Children.

Agreements with regard to Compromise of Offence: The agreements which

are outcomes of Compromise with regards to an offence are opposed to public
policy.

A Case on this point is Venkata Subba Rao Vs Chandanmal. In this A is an

Ayurveda doctor and B is a money lender. A Contract of loan gets formed

28 | P a g e

between them according to which A has to pledge his medical instruments

with B as Security. But A fills-up a wooden box with bricks etc and pledges the
box. It comes under public cheating in accordance with Sec. 420 of IPC. After
coming to know about the fraud B wants to file criminal prosecution against
A. In the mean while A`s Son-in-law namely C makes a Compromise and
executes a deed in support of debt taken by A. There after B sues C for
recovery Court decides that the Contract which has got formed between B
and C is agreement with regard to Compromise of offence and hence void.
Agreements with regard to sale of Public Offices and Titles: Titles and
positions in Government will be given basing on personal talent. That person who
has obtained them cannot transfer them to some other person by means of an
agreement.

A case on this point is Swamynathan Vs Muthu Swamy. In this case a Contract

gets formed between A and B according to which A has to transfer his
position in govt. to B for certain consideration. It is opposed to Public Policy
and hence held to be Void.

Agreements with Alien Enemy: Agreements with aliens are Valid so long as there
are good relations between two Countries. When War breaks out between the
Countries that Contract becomes opposed to public policy and hence void.

A case on this point is Metropolitan Water board Vs Dick Kerr And Company.
Metropolitan Water board wants to construct a dam and enters into a contract
with people who are aliens (other nation engineers). The contract is breached
followed by a war in between the two nations. Metropolitan Water board files
a case up on breach of contract. But, the case loses its validity since a war
broke out in between the two nations.

Agreements based on Bribes: When ever there is involvement of Crime or

Corruption, Such agreement is said to be opposed to public policy.

Related case is Pandyan Vs Roy. In this case there is an agreement between A

and B according to which B has to pay Rs.15000 to A and for that A has to
arrange for admission of A`s Son to a Medical College. Court decides that
their agreement is opposed to Public Policy.

Agreements to form Monopoly: Monopoly is Suitable to several unfair trade

practices and to exploit public. So an agreement to create monopoly is harmful to
Society.

Agreement to Commit a Crime: In case where objective of the agreement is to

conduct a Crime like murder etc, it becomes opposed to public policy.
29 | P a g e

Agreements to Defraud Creditors: If debtors form an agreement to defraud their

Creditors, Such agreement is opposed to public policy.
Agreements to Defraud Government: Agreements to evade taxes etc create
loss to government they are opposed to public policy.
- See more at: http://www.lawsofbusiness.com/2012/03/agreements-opposed-topublic-policy.html#sthash.UhxKMHRA.dpuf
Types of Damages in Contract Law
The term damages is to be understood as Compensation. Whenever one of the
party in the Contract comes across breach of Contract, the other party has some
rights. Out of those rights, they has the right to sue for damages i.e. damages for
breach of contract. The objective of court in arranging for compensation is to bring
the situation as if there is no Contract between the parties. The following are
different types of damages in contract law.
1. General Damages
2. Specific Damages
3. Nominal Damages
4. Vindictive Damages
5. Liquidated Damages.
General Damages
The loss arising out of breach of Contract Can be divided into two parts, namely
direct loss and indirect loss. If only direct loss is compensated it is called general
damages.

A case on this Point is Hobbs Vs London and South Western Railway Company.
In this case Mr. A Travels by train along with his wife, to reach a particular
destination. On account of main repair, the train gets stopped. Then it
becomes inevitable choice to go on Foot. Thus they have taken risk
physically. In the mean by, it rains heavily and A`s wife gets caught by cough
and cold. A files a Suit on Railway Company claiming compensation for
physical risk as well as illness. Here physical risk is direct loss and illness is
indirect loss. Court decides only general damages here.

Specific Damages
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In case where indirect loss also is Compensated besides loss, it is called Specific
Damages. To get specific damages, concerned special situation must be
communicated.

A case on this point is Simpson Vs London and North Western Railway

Company. In this case Mr. A is a farmer he wants to sell his agriculture
products in an agricultural fair which is going on at a particular place. For the
purpose of transportation, A handover his agricultural Products to a Railway
Company. While making delivery to the Railway Company, he gives clear
instructions to the same in connection with transportation, without any delay.
But, the Railway Company makes delay and the goods reach the destination
after closure of fair. A claims Compensation to inconvenience which is direct
loss. And also loss of profit which is indirect loss. A`s special situation is
Communicated, Court arranges for specific damages.

Nominal Damages
At times, on account of breach of Contract, the other party may not come across
any loss. Though it is the situation, the other party can file a Suit. Then Court
decides a very little amount of Compensation. It is called nominal damages.
Generally this type of damages will be fixed in case of anticipatory breach.
Vindictive Damages
It is otherwise known as penalty damages. Here Contract will be breached by one of
the parties and the other party comes across heavy suffering which cannot
pressured in the form of money. Then Court decides heavy amount as
Compensation. This type of damages will be decided on the following occasions.
Breach of marriage agreements and Wrongful dishonor of Cheque by
banker.

A case on this point is David Son Vs Barclays Bank. In this case Mr. A is a book
seller and he is customer of Barclays Bank. On one day he issued a cheque
amounting to 2 pounds, to one of his Creditors. But the Banker dishonors the
cheque negligently though there is sufficient credit to his account. As a result
A`s business as well as personal reputation gets destructed. There after A
files a Suit and gets penalty damages amounting to 250 pounds, from his
banker.

Liquidated Damages
It is otherwise known as predetermined damages. The terms of Contract determine
the amount of Compensation.

A case on this point is Dunlop Pnumatic Tyre Company Vs New Garage and
motor Company. In this case there is a Contract of agency between DNT

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Company and NGM Company where DNT Company is Principle and NGM
Company is its agent. Per the terms of their Contract if NGM Company sells
goods below the listed Price, NGM Company has to pay five pound per unit
thus sold. Two units are sold below Specified Price. Court arranges for 10
pounds as determined by Contract.
- See more at: http://www.lawsofbusiness.com/2013/08/types-ofdamages.html#sthash.x98ZpSHV.dpuf
Breach of Contract
Whenever contract is breached by one of the Party in a contract, the other party
comes across some suffering. Therefore, contract act has given certain rights to
such suffering party. Those rights are called remedies for breach of contract. Those
are given below:

Right to sue for Damages.

Rights to sue for Specific Performance.

Rights to sue for Injunction Order.

Rights to sue for Quantum Meruit.

Rights to sue for Recession of Parties.

Right to sue for Damages

Different types of Damages: Damages in legal terms called Compensation.

Whenever one of the party in the Contract comes across breach of Contract, the
other party rights to sue for damages. (Read More...)
Rights to sue for Specific Performance: At times the suffering party may file a
suit claiming specific performance form the party which has breached the contract.
But this type of suit very rarely becomes successful. The following are some
circumstances where suit for specific performance will not be taken into
consideration.

Example 1: When performance depends upon personal talent and the party
has list Such talent.

Example 2: When court thinks that it is just and equitable to arrange for
compensation.

Rights to sue for Injunction Order: The order issued by court restrict in a person
from doing a particular thing is called injunction order. Upon breach of contract the
suffering party may proceed legally for injunction order.

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A case on this point is Barner Bros.Vs Nelson. In this case a contract gets
formed between A and B according to which B has to conduct his dance
programs at A`s theater only for certain period. But B breaches the contract
and arranges his programs at other theaters also before expiry of agreed
period. A`s sues for injunction order. Then court issues injunction order saying
that B should not conduct his programs at other theaters before expiry of
agreed period.

Rights to sue for Quantum Meruit: Whenever a party performs the contract
partially and then the other party breaches the contract, Suit can be filed claiming
proportionate remuneration. It is called suit for quantum meruit.

A case on this point is Flanch Vs Karlbarn. In this case A is editor of a

magazine and B is a writer. According to their contract B has to supply story
to A`s magazine for certain number of weeks for a particular consideration. B
supplies story for some weeks and there after A closes down his magazine. B
sue`s for proportionate remuneration and it is allowed by court.

Rights to sue for Recession of Parties: At times the suffering party may sue for
recession for contract.

Example: A contract has got formed between A and B on 1st January.

According to their contract A has to supply 100 pairs of ready made dresses
to B, on 1st April on 28th March strike by transport companies is announced
which will be called off on 3rd April. It should be noted that A cannot supply
on 1st April. But B is in need of those dresses only on 1st April. Hence B can
sue for recession on contract.

- See more at: http://www.lawsofbusiness.com/2012/03/breach-ofcontract.html#sthash.VahUk7JR.dpuf

Termination of Contract
Contract creates relation between the parties and binds them over. Termination of
such contractual relations is called discharge of contract. The following are different
modes of discharge or termination of contract.
1. Discharge by Performance.
2. Discharge by Breach of Contract.
3. Discharge by Impossibility.
4. Discharge by Operation of Law.
5. Discharge by Lapse of Time.
6. Discharge by Mutual understanding or by Agreement.
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Discharge of contract by Performance

As said by Salmond, contract creates obligations to parties. If both parties perform
their contractual obligations promptly, the contract is said to be discharged by
performance. It is the ideal method that number of contracts gets terminated in this
way.
Discharge of contract by Breach
Failure in performance of contractual obligation is called breach of contract.
Discharge of contract takes place by breach of contract also. Breach of contract is of
two types. Namely;

Actual breach and

Anticipatory breach.

In case where contract is breached by party on the date of performance, it is called

actual breach. If breach of Contract takes place before data of performance, it is
called anticipatory breach.
Discharge of contract by Impossibility
The element of impossibility terminate contractual relations. impossibility is of two
types. Namely;

Pre Contractual impossibility and

Post Contractual impossibility.

If impossibility has already come into force before the contract itself, it is called PreContractual impossibility. Here discharge of Contract takes place soon after
formation of Contract. The impossibility which comes into force after the contract is
called Post-Contractual Impossibility. Here contractual relations will exists only up to
occurrence of impossibility.
Discharge of contract by lapse of time
Limitation act has specified duration to perform different contracts. The duration
thus specified is called limitation period. Soon after expiry of limitation period, the
contract gets discharged.
Example: There is a contract of loan between A and B. Her limitation period is 3
years. After completion of 3rd year discharge of contract takes place and debtor
creditor relationship comes an end. Thus it becomes time bared debt which cannot
be recovered by means of legal proceedings.
Discharge of contract by Operation of law
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This can be as following;

By Death: Whenever one of the parties comes across death, contractual relations
will come to an end.
By Insolvency: When one of the parties to the contract becomes insolvent, he
forgoes capacity to contract and those contracts which were made by that person
will get discharge.
By lunacy: When one of the parties gets attached by lunacy discharge of contract
takes place.
Right and liability going into the hands of same party: Contract creates right
to one party and liability to the other when right and liability reach the same
person, the result is discharge of contract.

Example: X has drawn a bill on Y. Here X has right to collect amount on the bill and Y
has liability to pay. There after X has endorsed the bill to Z. Where Z has got the
right and liability is with Y. Assume that Z has endorsed the bill to Y. Now right as
well as liability are with Y. This situation discharges the contract.
Discharge of contract by Agreement
This can be as following;
By Alterations: Whenever Material alterations in contract are made, then it is said
that old contract has got discharged and a new contract has come into force.
By Renewal: At times parties to the contracts may substitute completely new
contract in the place of old contract. Now the old contract has got discharged.
By Recession: In case of recession old contract gets discharged and there will be
no formation of new contract.
Example: There is a contract between A and B according to which A has to supply
100 pairs of ready made dresses to B on 10th January. Where date of formation of
contractee`s 1st January. On 2nd January A says to B that those dresses have
become out of fashion and hence not possible to assemble 100 pairs. Still B says
that though he (B) supplies 100 pairs by taking a lot of risk, B cannot sell them
because they are outdated. Thus by mutual understanding, they have terminated
their contract.
- See more at: http://www.lawsofbusiness.com/2013/08/how-to-terminatecontract.html#sthash.UewE6Fyo.dpuf
Quasi Contracts
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In case of Quasi Contract, there will be no offer and no acceptance either on express
base or on implied base. But under certain circumstances Court creates contract
between the parties artificially and thus binds over the parties. Such contracts
which are created by virtue of law are called Quasi Contracts. Section 68 to 72 of
Contract Act read about the situations where court can create Quasi Contract.
Section 68 - when necessaries are supplied: When one party supplies
necessaries to the other (without request), a quasi contract comes into force.

A case on this point is Chaval Vs Cooper.

Section 69 - When expenses of one person are paid by the other: When
expenses which are to be paid one party are paid by another party, the parties are
said to be under quasi contract.

A case on this point is Hazarilal Vs Navaranglal. In this case B purchases A`s

agricultural land. On that land cess is in arrears for a longer period which are
actually to be cleared by A, But B pays that amount. Here Court creates a
quasi contract between them under

Section 69 and thus capacitates B to recover that amount from A.

Another case on this point is Govindram Govardhan Das Vs State of Gondal.
Section 70 - When one party is benefited by the activity of another
party: When one party Conducts an activity and its benefit is attained by another
party, then also Court can create a quasi Contract.

A Case on this point is DamodarModaliar Vs Secretary of State for India. In

this case A is resident of a Village. The local government conducts repairs to
the tank situated at A`s village. As a result A gets benefited because the
surrounding lands belong to A. Here Court creates a Quasi Contract and
decides that A has to bear cost of repairs.

Section 71 - In case of finder of lost goods: Court can create a quasi contract
in case of finder of lost goods.

Related case is Hallius Vs Fowler. In this case B finds a diamond at A`s shop
and hands it over to A, requesting A to send the diamond to true owner. True
owner is not found. When true owner is not found. Finder gets the title. No
one can claim share in it. Here court creates a bailment contract between B
and A and thus capacitates B to get diamond back.

Section 72 - When payment is made by mistake: When ever payment is made

by mistake or goods are delivered by mistake , Court can create a quasi Contract.

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A case on this point is Khaniyalal Vs Sales Tax Officer of the Banaras. In this
case Mr. A pays Sales tax by mistake though he is need to pay. Here Court
creates a quasi Contract and capacitates A to recover that amount.

- See more at: http://www.lawsofbusiness.com/2012/03/quasicontracts.html#sthash.VxpQjchg.dpuf

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